Moral philosophy and business ethics
Why business ethics should be a necessary endeavour
The 'legalist' challenge to business ethics
Common-sense and mass media scandals
The positivistic challenge to business ethics
The ideological challenges to business ethics
The classical challenges
The contemporary challenges
The main topics of business ethics
Business ethics is a brand new field of research, focused on the specific moral issues of the economic activities. R. T. De George, one of the most prominent authors in this discipline, defines 'business ethics' as the ethical outlook, whether implied by behaviour or explicitly stated, of a company or individual engaged in business. Behaviour and statement can of course come apart, so that one might say of a certain corporation: 'Their ethic is allegedly one of service to the community, but their woeful environmental record shows what they really believe.'1
In a second sense, 'business ethics' is that set of principles or reasons which should govern the conduct of business, whether at the individual or collective level.2 If we assume that there are many ways in which people should not act in business, business ethics in this second sense refers to the way people should act.
In its final, and most commonly used, sense, 'business ethics' is an area of philosophical enquiry, with its own topics of discussion, specialists, journals, centres, and of course a variety of different ethical positions. In this sense, Roger Crisp suggests that "business ethics refers to the philosophical endeavours of human beings to grasp the principles constituting business ethics in its second sense, usually with the idea that these should become the 'ethic' of real business and business people."3
The mere reading of Crisp's definition could explain why so many business people are quite sceptical about the relevance of business ethics to their day-to-day problems and practical dilemmas. Instead of making facts look more simple and easy to understand, philosophers seem to speak about another world, dealing w 24324r173y ith artificial speculations, which have nothing in common with the usual concerns of people engaged in business. But that is not true. In plain English, the distinguished philosopher from Oxford wants to tell that, as a philosophical inquiry, business ethics seeks to evaluate and to support with reasons the moral values and norms which should govern the economic game, hoping that its explanations will make a contribution to the improvement of the everyday moral practices in real business.
Just like medical or legal ethics, business ethics is an applied ethical theory. More precisely, the concepts and methods of ethics, as a general theory, are invoked in dealing with the specific issues of a certain field of activity, such as health care, law and legislation or business.
But what is the meaning of the word 'ethics'? A few years ago, sociologist Raymond Baumhart asked business people, 'What does ethics mean to you?'. Among their replies, the most common were the following: (1) "Ethics has to do with what my feelings tell me is right or wrong." (2) "Ethics has to do with my religious beliefs." (3) "Being ethical is doing what the law requires." (4) "Ethics consists of the standards of behaviour our society accepts." (5) "I don't know what the word means." These replies might be typical of our own. The meaning of 'ethics' is hard to pin down, and the views many people have about ethics are shaky.
Like Baumhart's first respondent, many people tend to equate ethics with their feelings. But being ethical is clearly not a matter of following one's feelings. A person following his or her feelings may recoil from doing what is right. In fact, feelings frequently deviate from what is ethical.
Nor should one identify ethics with religion. Most religions, of course, advocate high ethical standards. Yet if ethics were confined to religion, then ethics would apply only to religious people. But ethics applies as much to the behaviour of the atheist as to that of the saint. Religion can set high ethical standards and can provide intense motivations for ethical behaviour. Ethics, however, cannot be confined to religion nor is the same as religion.
Being ethical is also not the same as following the law - an idea which will be argued several times, and on different grounds, in this book. The law often incorporates ethical standards to which most citizens subscribe. But law, like feelings, can deviate from what is ethical. The slavery of African Americans before the American civil war and the apartheid laws from South-Africa, only recently abolished, or the discrimination of women in the fundamentalist Islamic countries are grotesquely obvious examples of laws that deviate from what is ethical.
Finally, being ethical is not the same as doing 'whatever society accepts'. In any society, most people accepts standards that are, in fact, ethical. But standards of behaviour in society can deviate from what is ethical. An entire society can become ethically corrupt. Nazi Germany, Bolshevik Russia or late Ceausescu's Romania are good examples of morally corrupt societies. Moreover, if being ethical were doing 'whatever society accepts', then to find out what is ethical, one would have to find out what society accepts. To decide what I should think about abortion or euthanasia, for example, I would have to take a survey of Romanian society and then conform my beliefs to whatever society accepts. But no one ever tries to decide an ethical issue by doing a survey. Further, the lack of social consensus on many issues makes it impossible to equate ethics with whatever society accepts. Some people accept abortion or euthanasia, but many other do not. If being ethical were doing whatever society accepts, one would have to find an agreement on issues which does not, in fact, exist.
What, then, is ethics? I shall equate ethics with 'moral philosophy' - which is a philosophical inquiry of morals and morality. Ultimately, the ethical theory is an attempt to give a rational answer to one fundamental question: What one should do? Quoting a well-known definition, stated by Henry Sidgwick, we can say that ethics, conceived as a theoretical approach of the moral life, means "any rational procedure by which we determine what individual human beings ought - or what it is right for them - to do or seek to achieve by voluntary action."4 More precisely, ethics has two meanings. First, as moral philosophy or theoretical approach, ethics refers to well based standards of right and wrong that prescribe what humans ought to do, usually in terms of rights, obligations, benefits to society, fairness, or specific virtues. Ethics, for example, refers to those standards that impose the reasonable obligations to refrain from incest, rape, stealing, murder, assault, slander, and fraud. Ethical standards also include those that enjoin virtues of honesty, compassion, and loyalty. And, ethical standards include norms relating to rights, such as the right to life, the right to freedom from injury, and the right to privacy. Such standards are adequate patterns of behaviour because they are supported by consistent and well founded reasons.
Secondly, as a practical approach, normative ethics refers to the study and development of one's ethical standards. As mentioned above, feelings, laws, and social norms can deviate from what is ethical. So it is necessary to constantly examine one's standards to ensure that they are reasonable and well-founded. Ethics also means, then, the continuous effort of studying our own moral beliefs and our moral conduct, and striving to ensure that we, and the institutions we help to shape, live up to standards that are reasonable and solidly-based.
As a general theory, ethics is not concerned with any particular category of people, its questions being asked from the standpoint of mankind. 'What one should do in order to fulfil his or her desires, goals, and ideals, in such a way that would make possible the most flourishing life of an individual, no unnecessary harm being done to any other people, but letting everyone else to seek freely his or her personal achievements, and even making a contribution to a better society?' - this is the core of all ethical investigations. The applied or practical ethics ask the same question, but from the standpoint of a particular category of people. What a doctor or a nurse should do in their professional activities - namely healthcare? What a lawyer should do when acting as a judge, as a councelor or as a prosecutor? Our specific question is: What business people should do in doing business? Which are the moral responsibilities and duties of a businessman? As a common-sense problem, this question has been asked since the ancient times, but only recently it had become the central issue of an academic field of research: business ethics. Why did this happen? Which are the social and economic changes that have made common-sense opinions and beliefs on what business people should do in their real life to be judged as outdated and inadequate, requiring a theoretical approach of the reasonable ethical standards which should govern business in the contemporary world?
At first glance, business ethics might be considered as an Anglo-American academic fashion, spreading all over the world, just like Coca-Cola, Levi's blue geans, Hollywood movies or rock'n'roll music. As a matter of fact, even in the American universities, business ethics is not yet an important field of research and a well established academic discipline. After the Enron scandal, the issue of teaching business ethics in the US B-schools raised fiery debates. Last year BusinesWeek published an article written by Brian Hindo - "Where Can Execs Learn Ethics?" The author says: "Given the ethical lapses at Enron, Andersen, Sotheby's and Christie's, Merrill Lynch and, most recently, the clouds hanging over Tyco and ImClone, it would seem logical for business schools to put a sharper focus on teaching future business leaders to do the right thing. Sure, most B-schools are loudly condemning such ethical breakdowns. But what are they doing to really combat recurrences of such behavior? The short answer: Not much."5 Very recently, in her article "Ethics Is Also B-Schools Business", published by the same review, Jennifer Merritt argues the same point. "To clean up ethics in corporations," she claims, "you have to start at the beginning of a career. Business school, that is. At first glance, it might seem obvious: B-schools, like the corporations their grads work for, must do more to promote ethics - everyone says so. And nearly all MBA programs - and increasingly, undergraduate business programs - have added ethics courses to their curriculums, dating back to scandals such as the savings & loan crisis. But a class here and there isn't enough to set future managers on the straight and narrow."6
Brian Hindo's article received a lot of enthusiastic letters, expressing the total approval of the readers, even though not all of them agreed with his view. For instance, Patrick R. Rogers, PhD, Associate Professor at North Carolina A&T University, says: "Your premise that ethics should, or even could, be taught in schools of business is questionable at best, irresponsible at worst. Ethics are personal and well-defined early in life. The best a business school can do is to try to get students to consider a broad range of stakeholders in the decision-making process. However, that is a far cry from teaching them right and wrong. Maybe [Enron's Jeffrey] Skilling and [Andrew] Fastow are just bad guys. Of course, maybe if we had just taught them right and wrong while they worked on their MBAs, Enron never would have happened. Come on!"7 In an interview taken last month by Jennifer Merritt, Thomas Donaldson, professor at University of Pennsylvania's Wharton School, claims that "the most pressure to teach and study ethics has come from students and corporate executives. [...] The hardest nut to crack has been the faculty."8 Donaldson refers to the resistance which faculties oppose to the development of the systematic study of business ethics, resistance justified by the lack of funds for research in this field. In America, the reward system inside each discipline is tied in some way, at all schools, to publication of research. Only a few journals are stronger in ethics than in other subjects, and ethics is not as tangible a subject as, say marketing or decision science, making it harder to assess the depth of research in ethics. Additionally, few professors actually concentrate on ethics as a discipline, because it does not promise a bright academic career. In other words, the deans hesitate to increase the importance of business ethics as long as this discipline does not find a generous and stable funding.
One of the readers of BusinessWeek, Michael Forde, Toronto, Canada, asks an innocent, but very deep question: "Why do ethics have to be cost-justified? In our early upbringing, we were all, I suppose, instructed and shown exemplary behavior indicating why ethics were essential to good character and humanity. When our kids challenge us on our ethical posture, should that discussion focus on the rate of return, cost-benefit, or net present value of simply doing the right thing? Have conscience and morality been laid off, outsourced, or taken the buyout package? I for one refuse to accept money/profit as the highest arbiter of all values. We adults cannot reject moral behavior for its own sake, [while demanding] that from our children."9
As for the students, some of them would be interested in ethics, but very few take courses in this discipline; most of them choose to study those 'core' objects and 'hard skills' which the recruiters seek, because they are professionally more qualified and productive. Ron Cenfetelli, another Canadian reader of BusinessWeek, has a point in saying that "Business education has moved from an education model to a student-as-customer model. Just as in a restaurant, if your customers don't like spinach and they don't want to buy it, you don't force it on their plate. Students respond to such attempts at broader education by lowering the scores [they give their schools] on annual ranking surveys. It's as if children could dock their parents' salary for making them eat their vegetables. In the case of B-schools, lower survey rankings mean less tuition revenue, corporate support, and so forth."10 As you can see, even in its home country, business ethics is not yet accepted and respected by everyone.
But what about Romania? It might be thought that, willing to imitate the Western models, we are now beginning to study and teach business ethics, even though our economic system is not yet compatible with the free market economy in the developed capitalist countries - and here we can see the revival of an old Romanian story: the adoption of modern, up-to-date Western patterns, uselessly and, sometimes, ridiculously applied on an Eastern, old fashioned and underdeveloped social reality. In Titu Maiorescu's salient words, "shape with no content" or "form without matter".
I don't see the matter this way. One of the most powerful causes of the slow steps we have taken on the path to a functional, efficient and competitive free market economy is the widespread and deeply rooted corruption in our society. Supposing - only for the sake of argument - that business ethics was no more than an academic fashion in the Western world, the transition of Romania to capitalism requires, among other things, a continuous and strenuous educational effort, meant to explain the negative consequences of an unethical behaviour in business, and to convince the people that, in the long run, we cannot become a prosperous and democratic society if we do not impose on ourselves and on our partners strict and demanding ethical standards. On the other hand, the progress of our economy requires an intense and constant partnership between the Romanian companies and solid foreign investors, so that we must be aware of their ethical codes and observe the Western standards of morality in business.
But even in the most advanced countries there are still a lot of people who do not take business ethics very seriously, considering it as an artificial and futile inquiry, almost completely irrelevant to the business people and their practical problems.
Maybe those who are sceptical about business ethics have a point and perhaps in some respects this new discipline really is an academic fashion. "Whether as a reaction to the 1980s yuppie culture, or a reflection of the 'caring, sharing' 1990s," says Elaine Sternberg, "business ethics has become fashionable." But quickly she adds: "Unlike hoola hoops or Rubik cubes, however, business ethics is not just a passing fad."11 Every fashion has its history, and each history has its roots and its meaning. Business ethics was born in the USA, after 1960, as a part or consequence of an ideological debate concerning the essence of capitalism versus socialism. In the United States, the radical left and the orthodox marxist-leninist groups have never brought a major influence. At that time, most of the American left-wing intellectuals were not advocating a dogmatic socialist doctrine. Adopting a large variety of critical perspectives, from a classical liberal point of view to anarchist and utopian visions, they were criticizing the post-industrial capitalism as a society dominated by the huge and malefic power of the multinational corporations, accused of considerable social damages and serious violations of justice. The big corporations have taken up the challenge, and started an active defense, trying to prove they were not only innocent, but even the most effective agents of the economic growth and social progress. One might see the roots of business ethics in those left-wing incriminations of the alleged immoral practices of the big corporations, and in the efforts made by the financial giants to clean their bad reputation. At a second glance, business ethics might be thought of as an attempt of the big corporations to embelish their public immage, proving that managers and business leaders are not ferocious sharks, obsessed exclusively with maximising their profits, but good and responsible citizens, deeply involved in social justice and constantly concerned with moral issues.
Even though they might be more or less true, these two characterizations - academic fashion and propaganda campaign of the powerful corporations - are not the only possible ways to define business ethics. No fashion could last four decades and spread constantly all over the world if it was entirely artificial. The Anglo-American school of economics is well known for its pragmatism, and business ethics would not have resisted and become a major discipline without a real object of investigation. We have to assume the reality of certain practical and morally significant aspects of capitalist economy which deserve a systematic research and an academic status.
On the other hand, the big corporations would not be interested in convincing the public of their concern for business ethics if the public paid no attention to the moral issues, and if the morality of business was regarded with a total indifference by the ordinary people, attracting only a few members of the academic community. The money spent by the powerful companies on attesting their ethical behaviour proves the existence of a serious and widely spred criticism of their business activities. Exposed by the press, dragged into financial scandals, law suits or even criminal trials, more and more companies began to adopt and to develop their own codes of ethics, meant to consolidate a so-called 'company culture', devoted to a set of stated moral values which must guide the current activities of all the members of a firm.
Therefore, we have to admit that, beyond the academic artificiality of certain scholastic arguments, and beyond the interest of the big corporations in the improvement of their public image, there must be a core of real and important questions which keep business ethics alive, as a genuine field of research and debate. Especially the last two decades brought forth spectacular social, political and technological changes, as well as shifting attitudes and outlooks of the stakeholders of different business activities. Many of the most prominent trends of the 1980s and 1990s focused attention on business ethics, and made it something that businesses ignore at their peril. "Consumerism, 'social responsibility', demographic changes, privatisations, investigative journalism, global markets, environmentalism, management theories [...] all have raised public awareness of business conduct and the need for business to respect business ethics."12
The actions of governments, for example, have brought business ethics issues into sharp relief. Some of these issues have just become urgent and extremely controversial in our transition to a functional free market economy. In the Western countries, as well as in present Romania, privatisation programmes have required previously government-owned enterprises to conduct themselves more as businesses. In response, they have undertaken large-scale redundancies and awarded their executives sharply increased remuneration. Questions have arisen as to the ethics of such actions, and indeed as to the proper objectives of the enterprises themselves: is it to serve the public welfare or the interest of their shareholders?
With governments attempting to withdraw from sectors they have dominated for decades, questions have arisen more generally as to the extent to which business should fill in the gaps. Hopes that business might support the arts or sponsor invention or further education are of course not new. What is relatively new, however, is the transformation of hopes into expectations, and stronger still, into demands: what was once voluntary beneficence is ever more frequently regarded as 'social responsibility'. Also new is the extent to which business is being called upon to cure all the ills of society: not just to make safer products or improve employment conditions, but to save endangered species and alter fundamental social attitudes. (Of course, this is a controversial issue only in the West; until now it never crossed our fresh-made millionaires' minds to support art, invention, healthcare or education - at best, some of them are spending their easy money on sponsoring football clubs, golf courses or boxing fights, while others pretend to be great hunters of wild animals.)
Questions of business ethics have also been prompted indirectly by the action of government, through their effect on the economy. Whereas the boom years of the 1980s raised questions about business profligacy, and the role and legitimacy of takeovers, the subsequent recession has forced business to make hard choices about cutbacks and layoffs and paying their suppliers. With their very survival at stake in the face of global competition, businesses have had to seriously consider patterns of conduct which have proved notably successful overseas.
Awareness of business ethics questions has also been raised by the growing media attention paid to business. As business has increasingly come to be front page news, so has business misconduct. At least in this respect, we can be proud of standing in line with the West - Romania had in the last decade its big media scandals but, unlike the West, we are still waiting for our big legal trials.
The actions of stakeholders groups have also made business ethics more important. Increasingly, the best employees in the developed countries are attracted not just by pay and perks, but by job satisfaction, potential for growth, and the ethical character of their employers. With the number of candidates from the traditionally favoured groups expected to decline, a firm's ethical stance may therefore be a key determinant of its ability to attract and retain preferred staff. And whereas past consumer movements concentrated on the qualities of the product, the new trend is to 'vigilante consumerism', in which consumption choices take into account the character of the producting firm. So the firm that wants to attract increasingly critical customers must have a care for business ethics.
Shareholders are also attending to the ethics of companies they own. In 'ethical investment' movement, investment decisions are based on companies' attitudes and behaviour, rather than on solely financial criteria. And in both the US and the UK, institutional investors have started to rebel against bad business practice. No longer content to express their dissatisfaction by selling their shares, or limited in their ability to do so by the very size of their holdings, shareholders have started to take an active interest in the way their firms are run, vetoing management proposals and voting out management. Such shareholder activism is spreading world-wide: American investors in overseas companies are exporting their concerns along with their capital. So firms everywhere are increasingly liable to be assessed on the basis of the quality of their corporate governance, a key element of business ethics.
An increased focus on business ethics has also been provoked by the changing nature of business itself. Business has become more international, complex and fast-moving than once it was. New issues have arisen, and the easy certainties of the local club have been replaced by a multinational, multicultural context in which standards seem constantly in flux. As a result, even old familiar issues are harder to resolve: businesses need to consider explicitly matters that once could have been taken for granted.
Paying heed to business ethics has also been made more essential by changing corporate strategies and structures. Total quality management and organisational process reengineering and benchmarking have all led to traditional practices being overthrown. Layers of management have been stripped away and hierarchies flattened. As a result, authority has been devolved more widely throughout businesses: key decisions are being made at ever lower levels and by greater numbers of employees. It is therefore essential for everyone in the business, not just the top management, to have a thorough understanding of business ethics; all need to be aware of the organization's key values and aims, and how they are meant to be reflected in the business's conduct. For business ethics to be disseminated throughout the organisation, however, it must first be understood. Understanding is especially important, because the new structures also lead to new complexities - of information management and team assembly and organisation - for which there may be no traditional precedent. For 'empowerment' of employees to be successful, a proper understanding of business ethics is vital.
These are the most significant changes that made business ethics to become an important area of research, debate and controversy. But the specific problems of business ethics are not always obvious. They must be looked for, found, defined, and refined. Pursuing its inquiry, business ethics still has to meet several challenges, all meant to argue its futility and its lack of relevance, on different grounds.
Some people believe that the whole morality of business could be summed up in one single principle: 'Obey the law' or 'Observe the legal regulations'. What else could be asked for a businessman? Why should he keep more and different rules than anybody else? And yet, it is not so difficult to distinguish between law and morality in modern business activities.
In principle, there is a moral obligation to obey the law. Almost every legal system enshrines much moral teaching, and moral considerations have an important influence on the interpretation and development of the law. The legal system would break down unless most people obeyed most laws most of the time, and unless witnesses told the truth, and judges reached honest verdicts, without being made to by the threat of coercion. A legal system fails to do its job when laws are ambiguous and contradict each other, when the lawyers and policemen are corrupted, and when a significant number of people get in the habit of breaking the law, without even the slightest feeling of guilt, shame or remorse. Consequently, morality is not second to legal justice, like an idealistic, but unnecessary jewel or make-up put on the rough, but strong body of the law. On the contrary, the morality of a nation is the back-bone of the legal system, and if the back-bone is not upright and strong, the whole body of the legal system would be slanting, uggly and impotent, vicious and pervert. When corruption, bribery, and political pressure tend to distort the fair competition in the market, and to destroy the natural mechanisms of a free-market economy, to obey or to break the law might become a critical moral decision, as long as more and more businesses come to be forced to choose between legality or bankruptcy.
Many sceptics about business ethics would probably submit that keeping the law is primarily a moral commitment, but some of them would make a second claim, perhaps more difficult to reject. They would say that, beyond the moral decision of a honest businessman to keep the law, there is no room left for any other kind of ethical commitment. Many thinkers deny the possibility of business people having responsibilities or ethical obligations. A businessman has no alternative, in view of the competition of the marketplace, to do anything other than buy at the cheapest and sell at the dearest price he can. In any case, it would be irrational - if, indeed, it were possible - not to do so. Admittedly, there is a framework of law within which he has to operate, but that is all, and so long as he keeps the law he is free to maximise his profits without being constrained by any moral or social considerations, or any further sense of responsibility for what he does. But this is not true, for several reasons.
In the first place, there are some primitive moral rules, spontaneously born within the framework of business relations, early in the beginning of capitalism, which only much later became legal norms, but these primitive rules, intrinsic to the economic life, still are, and will always be primarily moral obligations. For example, 'Keep your promises' is an universal moral rule, which in business means 'Perform your contracts'. Long before its legal institution, this moral norm has been the fundamental rule in business, and even today the so-called gentlemen agreement is the basic norm of economic transactions, which simplify and accelerates the circulation of capitals.
Secondly, the legal regulations are often influenced by various extra-economic factors: social ideals, political interests or religious faith, which have consequences in the field of economy. Sometimes these consequences conflict with the logic and morality of business. For instance, an inefficient company, loaded up with large debts, and which has no real good prospects, must be penalized; economically speaking, its bankruptcy is the only ethical solution. If, for social or political reasons, the goverment decides to keep in business such a company, legally spending taxpayers' money, it might be socially or politically convenient but, from an economic standpoint, it is not ethical. The morality of business requires equal rules for all the players in the economic game, otherwise it would not be a fair competition. Sometimes, specific social or political circumstances force the government to favour, by legal regulations, certain economic activities, certain forms of property, social classes, professional categories and so on, and this kind of legal discrimination violates the moral rules of business. Summing up, business has its own intrinsic moral rules, meant to guarantee a fair competition, aiming at a maximum profit which can be obtained by means of efficiency, and not by stealing, lying, cheating, etc. The legal system must satisfy not only strictly economic necessities, but also many extra-economic requirements, and that is why so often the law conflicts with the morality of business, creating unequal terms of the economic competition.
This conflict between morality and law goes far beyond the economic life. Every law can be judged as moral or immoral. Think about apartheid or slavery, lower wages for women, child labour etc. They all have been legal, until the people had realized their deep immorality, which finally determined major changes in the legal system. There are matters still at issue: most of the Western democ-racies have abolished the death penalty, even though not all of their citizens believe in the morality or the social efficiency of this change in the penal system. Other democracies still inflict the capital punishment for the most dangerous and cruel crimes, but many of their citizens consider the death penalty morally wrong. Sometimes the law is more enlightened and more progressive than the social consciousness and the public opinion. Think about the gay liberation movement, the right of homosexual couples to get married or to adopt and raise children; think about abortion, euthanasia, transplant surgery, artificial insemination or genetic cloning: in many developed countries they are already legal, even though many people still oppose fiercely these practices, which in their opinion appear to be deeply immoral (not necessarily for religious reasons).
One might say that all of these three distinctions between law and morality are scholastic speculations or, at least, disputable matters of belief, involving conflicts of attitude, which no reasonable argument could resolve. If we could quarrel indefinitely about moral issues, the only practical way of knowing what we should do in specific circumstances would be to obey the law, either we consider the existing legal norms as morally good or wrong. So that, once again, what's the use of business ethics? Well, we have a few answers which do not involve academic subtleties, but very practical reasons why business ethics might be really useful.
In the first place, the law cannot, and must not regulate every aspect and each moment in our lives. The legal system offers only a general normative framework of the economic life, whose diversity generates a lot of impredictable evolutions and irregular circumstances, which it would be quite impossible to anticipate and freeze in some inflexible patterns of legally correct behaviour. But when the law has nothing to say, morality is the only available guide of our actions. Legally, every person is free to choose his or her inheritors. Morally, it is not indifferent if somebody gives his assets after his death to his relatives, to Salvation Army, to a scientific research fund, to a religious cult, to a terrorist organization or to his dog. Legally, you are free to spend your money in any way you like, except a number of explicitly forbidden activities; morally, it is a significant difference between spending your money on gambling, drinking or shooting lions in Africa, and making a good investment. Legally, a good investment is one which makes a profit, without breaking the law; morally, an investment in a casino or a peep show bar is not equal to an investment in a hospital or a waterplant.
Secondly, most often the law tells us how to proceed, but not what should be done. The law is concerned with the available means of our actions, but not with our purposes, decisions and choices. The legal system cannot answer questions like these: Which is better, retrench the work force so that the company can recover and perhaps rehire these people later, or keep full employment with possible dire consequences for the company, including bankruptcy? Should a business allow itself to be the object of a hostile takeover, which could result in the loss of many jobs of those currently employed? Or should it resist the takeover by paying 'greenmail' (buying the stock of a corporate raider at higher than market price so the raider will go away)? Or should the company load itself up with debt to decrease its attractiveness to a raider, even though this may reduce the company's profits? How do we asses the raider's promises to make the business more efficient by stripping away waste and strenghtening the company's competitiveness, thereby increasing the real value of the company to the shareholders? How would you answer these questions if you were an employee of the company? But what if you were a manager? A shareholder? A member of the community where the business is located? If we cannot clearly see all the ethical ramifications of our actions, we are often unable to isolate all the morally relevant aspects of the situation and choices become difficult, since "in virtually every relationship with stakeholders, there are issues that are ethical dilemmas, even though they're legally clear."13
One final reason why business ethics could be sometimes useful, beyond the strict conformity with the law, is the national character of legislation. Of course, there are international laws or multinational legislations, like those already adopted by the European Union, but still a good deal of legal regulations are specific to each national state. For instance, some medications are forbidden in the USA, but they can be produced in America and sold to other countries, especially from the Third World. Therefore, it is legal to protect the health of the Americans, and to jeopardize the health of other nations. But is it ethical? Advertising of cigarettes is more and more restricted in the West, but the restrictions vary from state to state, and in the Third World usually there is no restriction. Therefore it is legal to eliminate smoking in the Western countries, and to increase the number of smokers in the rest of the world. But is it also ethical? In countries like Romania, for example, the legal regulations concerning the protection of the environment are less strict than those adopted by the most developed countries. As a result, we have a lower cost of a product manufactured in such a country, because the industrial equipment, less sophisticated, but more polluting, requires a smaller investment. It is legal to protect the environment in the rich countries, and to inflict environmental damages in the poor parts of the world. But what about the ethical aspects of the matter?
To sum up: 'Obey the law' is indeed a fundamental principle of any free market economy and of any democratic society, but it does not resolve all the problems of the economic life, and cannot be an universal key for all practical dilemmas that an economic agent has to confront. Consequently, business ethics cannot be reduced to the respect of the legal system and can prove that it has its irreducible object of investigation.
The 'legalist' point of view is not the only challenge to business ethics. Many people think that big business is more or less incompatible with morality. Even jokes reflect such attitudes: "I hear you are taking a course in business ethics; must have the smallest textbook in the world." Even the term 'business ethics' is thought of as an oxymoron, a contradiction in terms, like 'square circle', 'gourmet diet meals' or 'cruel kindness'. Part of the problem is in the presentation of business leaders by the entertainment media. When is the last time you can recall that either a film, a television program or a newspaper article presented a business leader as an example of virtue, a concerned and active citizen, family oriented, an important member of charitable boards, and a generous contributor to worthy causes? The more typical presentation is the business leader as a scheming, untrustworthy, and dishonest manipulator of others (in the American movies) - if not as an ordinary thief and a nasty crook (in our press). J. R. Ewing, the main character of the TV serial 'Dallas', is Hollywood's archetypal mover and shaker, and this stereotype may have a gradual impact on attitudes. The PBS documentary 'Hollywood's Favorite Heavy' claims that "by the age of 18, the average [American] kid has seen businessmen on prime-time TV attempt over 10,000 murders."14 As for our Romanian kids and young people, the press and the television present each and every day not only fictitious characters, like J. R. Ewing, but real persons, which are at least dubious business leaders, if not mere scandalous rascals and shameless robbers. Consequently, business ethics, says Sternberg, "is commonly associated in the media with environmental disasters and financial scandals, with bribery and sexual harassment and competitive 'dirty tricks'."15 We have to admit that many people are sceptical about business ethics because they strongly believe that big business naturally ignores the moral rules, unscrupulously putting the maximum profit above all.
Apparently, this strong accent put by entertainment and news media on the scandalous behaviours, which frequently occur in big business, should exert a positive influence, making business ethics look more important and more attractive. In fact, this rush for scandals plays an ambiguous part, which is, in some respects, detrimental to the social perception of business ethics.
The prevalence of business scandals in the last years has helped fuel a growing public interest in business ethics. For the majority of people, whose knowledge of business issues and practices is derived largely from what they see on television or read in the papers, the issues raised by these scandals are the issues of business ethics; and even for those with deeper or more extensive knowledge, they are perceived as the main issues. Scandals, then, shape our perceptions of the ethical issues confronting business. Moreover, the process of turning events into scandals (of publicity, comment or debate) constitutes our primary response as a society to these issues.
It is partly through scandal and exposure that we seek to identify what is criminal and to prevent its recurrence, and scandal does sometimes bring about moral improvement. When a piece of wrongdoing catches the headlines or is so widely gossiped about that it is common knowledge, the publicity itself can disable the wrongdoer, and others who fear exposure can be put off and change their ways. More generally, the publicity can concentrate attention on what makes a given activity wrong and can alert people who think it is wrong to other people - sometimes hordes of other people - who think as they do. In this way a moral climate can be changed, at any rate for a time. Perhaps recent scandals caused by the collapse of the pyramidal games such as 'Caritas' or FNI (National Fund for Investment), the fraudulent bankruptcy of Bancorex, Albina Bank, BIR (International Bank of Religions), Columna Bank etc. made their contribution to a healthier financial environment in our country. And perhaps the repeated scandals caused by dubious privatizations, political protection for contraband trade, tax dodging, bribery, environmental damages etc. have had a moralizing effect on the Romanian business community. Perhaps. But will they alter the wider moral climate?
It is possible. It took scandals in the financial markets to inspire moralizing films such as Oliver Stone's Wall Street or Michael Mann's The Insider. Perhaps the existence of works like this is already evidence that the scandals have had an effect. The same scandals that inspired these films are sometimes before the minds of business leaders who speak about the importance of business ethics to their firms or to business generally. However, though they have no doubt done something to make ethical issues topical, I fully agree with T. Sorell and J. Hendry, when saying that "we would like to deny that scandals in general, and especially the lavishly publicized financial scandals, are a good guide to the ethical issues that confront business. We would like to deny, too, that they provide the right sort of stimulus for a change in the moral climate surrounding business."16 Sorell and Hendry support their position with several strong arguments.
To begin with the scandals that inspired Wall Street, there is the obvious point that activity on the financial markets is unrepresentative of business or commercial activity in general. The moral risks of being entrusted with other people's investments and some kind of inside information are not the same as the moral risks of trying to manufacture motor cars at the least cost. The moral risks of making a ship's load as big as possible and its journey times as short as possible are not the same as the moral risks of producing cheap beef or cheap eggs. In short, if justice is to be done to the breadth of the moral challenges in business, then one had better not get transfixed by shady practice among the stockbrokers or bankers.
A second drawback of the well-publicized scandals is their tendency to focus on big business and big deals, as if business ethics was only a matter, or primarily a matter, for firms with huge turnovers or corporations with employees by the thousand. Sorell and Hendry refers to the UK, where firms employing nine people or fewer made up 90.1 per cent of all businesses in 1990, and where 78 per cent of businesses had turnovers of under £100,000 per annum; considering this economic structure, an ethics for big business would be an ethics for an extremely small sector of business. Moreover, and to return to the question of moral risks, it is clear that some are more urgent for small than for big business. A one- or two-man building firm that exists from contract to contract probably runs a greater risk of overstretching its workforce and failing to carry out its commitments to customers than one with the scale to reallocate employees when necessary. A restaurant with big debts and a clientele reduced by an economic recession may run a greater risk of overcharging than a big fast food chain. A small business may be in competition with sectors of a black or underground economy and therefore feel pressure to keep some of its transactions out of its official books. These are moral risks, but they are far removed from those of financial trading floors and large corporate board-rooms.
Leaving aside the details of the best-publicized scandals in business, scandals in general may not be a good starting point for ethics in general. Scandals are occasions when a public sensibility is offended, and for a public sensibility to be offended is not necessarily for anything unethical to be done. When black civil-rights protesters first sat down in whites-only cafeterias in the American south, it scandalized local whites, but the fact that it scandalized them does not mean that it was wrong for blacks to sit down in whites-only cafeterias. On the contrary, it is more defensible to say that the wrong lay in what was not scandalous, in what was accepted as natural: namely, the existence of cafeterias that barred people who were black. The same could be said about bribery in our society: a large number of people give and take bribe naturally, and nobody is really scandalized, even though almost everyone knows that bribery is a wrong national habit. There is another way in which the scandalous wrongdoing may, with repetition and the passage of time, come to look like commonplace and unscandalous. Perhaps some forms of drug dealing are cases in point. To sum up, scandalous behaviour need not include wrongdoing and wrongdoing need not scandalize. Or, in other words, scandal is an uncertain indicator of what is unethical.
Focusing on shocking scandals, mass media is detrimental to the credibility of business ethics in at least two respects: First, the public is presented almost exclusively with unethical behaviours in business, and this one-sided view strenghtens the common stereotype that business is not compatible with being ethical. That is why so many people think that 'business ethics' is an oxymoron. Secondly, the spectacular scandals which make the headlines suggest the point that business ethics deals only with the issues of the big businesses and big corporations. The truth is that not all business leaders are corrupted and not all of the small businesses are exonerated from ethical dilemmas. "We need more cases on positive ethical outcomes" - says Thomas Donaldson. "The attention to failure has [...] put the emphasis on legality and compliance. And so we've missed opportunities to focus on more positive or creative cultures that show good ethics."17 The same point is made, even more clearly, by Sternberg, who claims that media scandals "do not constitute the whole or even the main part of business ethics. Contrary to popular belief, ethical issues can arise in respect of any and all business activities. As a result, the need to consider business ethics is not an optional extra, but a central, inescapable fact of business life. Ethical concerns permeate every aspect of business activity, because ethical concerns permeate all human activity."18
It is not business ethics' concern to prove that not all business people are thieves and crooks; this is a matter of social experience. Business ethics must demonstrate that moral behaviour is a necessary condition of good business or, in other words, that someone cannot become and keep on being a successful business leader if he or she is not concerned with the morality of his or her conduct in business - briefly, that good ethics is good business. If it would be able to support with reasons this principle, and to demonstrate all of its logical and practical consequences, business ethics could exert a more or less significant influence on the real economic life. But this point raises some important and difficult questions, like these: Is it possible such a demonstration? And, if possible, would it bare a beneficial or a bad influence on real business?
One of the challenges to business ethics comes from the philosophers who think that ethical problems cannot be really resolved by means of rational arguments. They base their claim on a point of view advanced in the early twentieth century by a group of thinkers who argued that philosophy should be based solely on the analysis of statements of fact. If a statement could not be verified - that is, proved either true or false by methods of scientific analysis - these philosophers rejected it on the grounds that it was not meaningful. Statements that did not pass muster under the scientific criteria could be used to evoke strong emotions, persuade others to follow one's example, or express one's own private point of view; but without the rigors of empirical proof, no statement was to be accorded worth. In this view, all the ethical judgments and principles seem to be deprived of rationality. Ethics is not and cannot be a scientific form of knowledge; it only tries to persuade, appealing to emotions, feelings, interests and social habits. Like any other moral statement, 'good ethics is good business' cannot be proved true, just as its opposite, 'wrong conduct is good business' cannot be proved false. The ethical arguments do not prove anything. They seem to be acceptable only for those people who take for granted the moral principles. But if someone, who is not inclined to believe that good ethics is good business, questions the principle, asking: 'Why should I accept this statement?', one cannot give him empirical proofs.
Known as 'positivism', and sometimes referred as logical positivism because it uses logical techniques of formal analysis, this point of view initially attracted a great deal of support because it seemed to be scientific. But further reflection showed that this was not the case. For one thing, such a limiting attitude towards what counts as worthy eliminates most scientific theories and laws because they cannot stand up to the tests of empirical proof demanded by positivism. Why? Because scientific theories and laws themselves determine what counts as empirical proof and are generally viewed as organizing principles for the analysis of empirical data and not verifiable by the empirical means. Worse for positivism, however, is that it could not even prove the truth of its own assumptions. When a positivist argues that 'only statements that can be empirically tested are meaningful', the positivist is making a statement that itself cannot be empirically tested. These and similar difficulties with the positivist approach have pretty much caused it to be abandoned.
Though positivism may be dead as a philosophical theory, it is still alive and well in some business approaches. Case studies can be used to bolster the view that more and more facts, additional data, and the piling up of information will somehow lead the analyst to the best course of action. There is an approach to business ethics that devotes most of its concerns to the gathering of empirical data and to analysing the views of people in business regarding their business practices. Even some textbooks on business ethics approach the topic in this way. There is certainly nothing wrong with the gathering of facts, for data collection and analysis of facts can often lead to improved business decisions. But this approach does not capture the important issues raised by values and really reflects a limited, positivistic view of ethics. Ethics deals with values, and values are not the same as empirical facts.
Ethics deals with questions like these: What is the moral good? What makes an action good or bad? How are we to judge the moral worth of an action or a goal? These are philosophical questions, and to answer them demands that other questions likewise be considered: How can we justify a moral point of view? Is the intention or the consequences of an action the basis for assigning moral worth? How are we to balance the individual's good with the overall social good? And what do we mean by 'good' in the first place? The positivist is right when he claims that such questions cannot be answered by methods of mathematics and physics, but the point is that we still have to choose between dismissing all of the ethical issues, which means to put them at the lowest level of arbitrary and purely subjective decisions - de gustibus non disputandum or 'there is no account for taste' - and forcing our reason to clarify the meaning of the ethical terms, supporting with valid reasons our moral decisions and value judgments.
Should, must, ought: this is the language of ethics. Philosophers describe this as the prescriptive use of language. When we use such terms we are not describing how people do behave, but are making claims about how they should behave. Ethics, then, is prescriptive, not descriptive. An analogy could be made between ethics and logic, which does not tell us how people usually think and what are the customary rules of common-sense, but demonstrates the objective rules of valid inferences, whether everyone follows these rules or not. In other words, logic shows us how we should think if we were to make no mistake, and the fact that many people think sometimes incorrectly does not invalidate the logic principles. Just as logic demonstrates the right way to think, ethics tells us how we should behave if we were to do the right thing, and the fact that many of our actions violate the moral rules does not mean that these rules are not valid but totally arbitrary. Of course, there is only one set of logical principles, and logic is universal, above all the cultural differences but there are many sets of moral principles, and the ethical systems vary from one culture to another and change as time goes by. That is why ethics cannot stand equal to logic in its strictness and precision, but this is not the point. The point is that ethics, like logic, is a prescriptive, not a descriptive form of knowledge. That is why case studies offer the matter to be analysed, but not the concepts and principles of business ethics, which must be demonstrated by deductive reasoning.
But even though business ethics was no more than a persuasive discourse, this would not prevent it from bearing a real social influence on business. On the contrary. In the social life, rhetorical persuasion is often more efficient than the scientific arguments. Therefore, even if we had serious doubts about the cognitive worth of ethical statements and arguments, this would not clear away the question if business ethics exerts a beneficial or a negative influence on real business.
As above mentioned, there are people who believe that business has nothing to do with ethics. But not all of them have the same point in mind. The conservatives emphasize the word 'business': in their view, any moral claim on business means bad business. The free market economy must be let alone to function exclusively on its own rules. If we mix up business and morality, both of them will be disturbed. On the contrary, the left-wing thinkers emphasize the word 'ethics': in their view, capitalism and especially big business are deeply immoral in their very essence, and the only way to make social and moral justice is the struggle against capitalism. Of course, this is a deliberately simplified picture, based on the classics of economics. Let us look briefly at their views on this matter.
The challenge from the right on business ethics comes from those who argue that the only duty of business is to make profit. In a totally free marketplace, where people are allowed to seek their own self-interest, the forces of competition will produce the quantity and variety of material goods essential to civil society. This was basically the point of view of the eighteenth-century philosopher and economist Adam Smith (1723-1790). In one of the most famous quotations from his book An Inquiry into the Nature and Causes of the Wealth of Nations, Smith claims that "it is not from the benevolence of the butcher, the brewer or the baker that we expect our dinner, but from their regard for their own self-interest". In a free market the forces of supply and demand act as a sort of "invisible hand" - again, to use Smith's salient phrase - that restrains individual greed and stimulates productivity. The term 'invisible hand', though used only once by Smith in his book, has come to be a kind of mantra for the unrestrained economy, a laissez-faire approach to the marketplace.
Critics of business activity on the left of the political spectrum often see business as inherently immoral. One of the most severe antagonists, and certainly the most influential, was Karl Marx (1818-1883). He based his analysis of the state of industrialized Europe on what he experienced of the practices of industrialized countries in the nineteenth century, and by any standards the plight of workers was desperate. Long hours, little pay, scant or nonexistent benefits, and a complete lack of job security characterized the situation of workers of mid-nineteenth-century Europe. Marx set about to discover the causes of this misery and to suggest a cure.
The classic model of economics is that there are three factors in economic growth: land, labour, and capital. The workers have no land or capital. All they have is their labour, and the organization of productive capacity of industrial states conspires to protect the interests not of the workers but of the owners of the means of production - that is, the owners of the mills, factories, shipping lines, railroads, and other productive capacities of the society. Similarly, the government uses its power to protect and extend the control of those who own the means of production and will even use the police or the military to enforce the claims of the owners. Marx expresses these criticisms of industrialized economies in many ways, but three of the claims that are prominent in his critique are the inevitability of the class struggle, the surplus value theory of labour, and the alienation of the workers. We will look briefly at each of these criticisms.
1 Marx begins his analysis with the claim that the most fundamental facts about any society are the economic arrangements whereby people produce goods and services. He called these arrangements the 'economic substructure'. From this economic substructure, flows the 'social superstructure', which includes all the social and cultural arrangements of that society, the educational system, art, and even religion. For example, in feudal society the economic substructure was based on the ownership of land, with power centered in the hands of a few individuals culminating in the king. These economic realities led to an ideological view that legitimized this state of affairs, and we can see this in the art of the times, the philosophy, even the religion, which defended the divine right of kings to rule. In industrialized cultures, primacy shifted from the ownership of land to the ownership of capital, the means of production. Marx calls these owners the 'bourgeoisie', as opposed to those who only had their labour to sell, the 'proletariat'. The class struggle Marx envisions was between bourgeoisie and proletariat, a struggle that he thought would become so intense that it would inevitably result in a revolution, the outcome of which would be the passing of the ownership of the means of production to the workers. From the marxist standpoint, any kind of ethics is part of the ideological superstructure, objectively determined by the economic interests of the ruling class - namely, the bourgeoisie in the capitalist society. Therefore, business ethics could not be more than a set of rules governing the competition between the capitalists, but it is not at all concerned with the workers' claims or rights. The main purpose of capitalist ethics is to provide the class system with a hypocrite moral legitimacy.
2 Also included in Marx's analysis of the proletariat was their relation to the labour they sold, the only economic factor under their control. When workers put in a fourteen-hour workday (not uncommon in the nineteenth century) and receive for that work a sum of money, that monetary reward does not represent the full value of the workers' labour. There is the surplus value of labour that the owners of the means of production appropriate for their own benefit. For example, let us say a worker produces $20 worth of value and receives only $8 in wages. The $12 difference represents surplus value, which the worker gives up to the owners. For Marx, the seizure of this surplus value by the owners is tantamount to robbery. In a capitalist society, the owners convert this surplus value of labour into additional wealth that they use to expand their control of capital further in the form of larger factories, bigger production facilities, and even more powerful industrial empires. The lower the wages paid to workers, the greater the surplus value; and the dynamics of capitalist economies, Marx argues, is to force workers into ever longer workdays at ever lower pay. Starting with such a premise, even the word 'business ethics' is not only an oxymoron, but even a cynical joke, as long as the fortune of the owners is based on the work they steal from the wage-labourers.
3 The economic forces that Marx describes not only lead to the inevitable clash between bourgeoisie and proletariat but also produce an alienated worker. For Marx, 'alienation' includes three things: workers are separated from the products produced by their labour; the capitalist owner converts the surplus value of labour into more capital, further alienating workers from the fruit of their labour; and workers are alienated from each other when forced to compete for scarce opportunities to sell their labour.
Throughout Marx's writings is the sense that he has discovered scientific laws of social development. He sees revolution in industrial societies as the outcome of the inevitable class struggle between proletariat and bourgeoisie. He does not so much call people to revolution (though he and Engels did write a revolutionary tract, The Communist Manifesto) as announce the inevitability of capitalism's collapse. From the vantage point of one hundred and fifty years, we can easily diagnose Marx's many errors. The revolutions he announced did not occur in industrialized countries; rather, Marxist regimes came into power in preindustrial societies (Russia, China, Cuba) and were imposed on the industrialized economies of Eastern Europe by the might of the Red Army. Neither did Marx envision the self-correcting forces that would transform the robber baron capitalism of the nineteenth century. Social policy changes that outlawed child labor, imposed a limited work week, set minimum wages, prevented monopolistic business practices, and brought the power of government into the marketplace to prevent workers being placed in unsafe environments and the destruction of the environment were changes in capitalistic economies that Marx could not imagine. Neither did he catch a glimpse of employee stock ownership plans, profit-sharing arrangements, the emergence of labour unions with their ability to counterbalance the power of industrial empires, the ownership of productive capacity by millions of shareholders and workers through their pension plans, or the often vast social safety net provided by governments to protect workers from the cyclical changes in business activity, such as unemployment compensation, job retraining programs, and government guarantees for worker pension plans.
Though most Marxist regimes around the world have collapsed, and the Marxian critique is now seen as based on only one phase of the development of capitalistic societies, there are still those critics who harbor some sympathies for Marx. For these critics, profit is still viewed as a kind of robbery, and they suspect that Marx may have been correct in his diagnosis of the inherent incompatibility of the interests of workers and owners. To be sure, business sometimes do still behave, if given a chance, in the classic nineteenth-century way - and Romania offers a lot of dramatic examples. Relations between labour unions and owners are sometimes warlike, and not all businesses have the interest of their employees high on their list of corporate priorities. When businesses violate their public position by illegally restraining trade, polluting the environment, engaging in unfair marketing practices, misrepresenting their products, subjecting their work force to known hazards, or otherwise behaving in a way that violates the social contract within which they function, these behaviors only reinforce the scepticism that many outside observers bring to their analysis of business.
Nowadays all the critics of contemporary capitalism agree that, in its present forms, the market economy still brings forth indesirable social effects and, consequently, business activity must be restructured in accordance with certain ethical values. But these values are not the same for the present right and left wings of the political spectrum. An excellent summary is offered by M. R. Griffiths and J. R. Lucas:
Two tides of fashionable thought have flowed and ebbed. Left-wing egalitarians believed that business was bad, profits immoral, and everyone ought to be paid the same. For many years they occupied the high moral ground, and had the better of right-wing realists, who believed that business was business, the profit motive the only one that could move a rational man, and all moral considerations irrelevant to the proper conduct of business affairs.19
The conservative critics claim that the contemporary free market economy is suffocated and obstructed by an excessive legislation, prescribing extra-economic requirements, which hinder businesses and limit the economic efficiency. The immoral effects are caused by the fact that economy is not let alone to function by its own inherent rules. The central value of these critics from the right is the individual liberty, and they plead for a minimal ethic, intrinsic to business activity. A contemporary advocate of a completely free market after the model of Adam Smith is Milton Friedman, a University of Chicago professor and Nobel laureate (1976). In his well-known book, Capitalism and Freedom, Friedman claims that in a free market economy "there is one and only one social responsibility of business - to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition, without deception or fraud."20 His view is simple: keep government out of the marketplace. Let business do what it will, and the forces of the marketplace will restrain the greed of unscrupulous entrepeneurs who produce a shabby product at exagerated prices. How does this work? Consumers will not buy a shoddy product, so its producer will be driven out of business. If a producer places too high a price on products brought to the marketplace, other producers will enter the market, creating an oversupply and driving down prices. Eventually the market will produce a kind of equilibrium where enough producers produce enough products to satisfy consumer demands at a reasonable price.
It is hard to argue against a free market these days, given the fact that much of the world is rushing to embrace the idea. The planned centralized economies of Eastern Europe and the former Soviet Union could not match the economies of the West in levels of productivity and quality, and they all but collapsed under the weight of bureaucratic inefficiency and waste. Friedman seems to be vindicated in another way, too: he argues that individual freedom and economic freedom go hand in hand. One cannot have a truly free society unless the marketplace is free as well. Friedman, however, is nothing if not consistent. He extends his model of economic freedom broadly, including the issuing of licenses to practice a profession (everything from selling real estate to the practice of medicine). Should the government require special licenses and proof of competence before allowing people to enter a profession? Not at all, Friedman says. The market will drive out inferior quality and reward excellence. No need for the heavy hand of government to do these things. Friedman also argues that business has no social responsibility, and that to use the profits of a company for social goods is to make a decision for the shareholders that they should make for themselves. Businesses serve society best, Friedman argues, when they keep to their true mission, wich is to make a profit. If by 'business ethics' we mean the social responsibilities of business, Friedman councels business to stick to business and leave social concerns to others. The government's proper task is to be mediator and enforcer of laws and contracts. Its role, he says, is "to provide a means whereby we can modify the rules, mediate differences among us on the meaning of the rules, and to enforce compliance with the rules on the part of those few who would otherwise not play the game."21
Few people agree completely with Friedman: we want physicians licensed in order to provide at least some assurance of competence, we expect government to set standards of purity for our food and drugs, and we have found through bitter experience that some activities of business, such as insider trading and stock manipulation, need to be curtailed by law and threat of punishment. But notice that we all agree that there must be a framework of rules of conduct if we are to have anything resembling civil society. Notice, too, that the best way to keep government out of the marketplace is for business people to conform their activities to principles of good ethical behaviour. In short, ethics can be thought of as the rules and principles rational human beings use to live together in peace, harmony, and - one hopes - prosperity.
The critics from the left stick to the idea that market economy is, by virtue of its intrinsic mechanisms, indifferent to moral claims, if not merely deeply immoral. Their central value is the social justice, which, in their view, cannot be achieved letting business to do what it will, but only by means of the economic policy of government. This policy must subordinate business activities to the public good, and the profits made by entrepeneurs and companies must be controlled by the state and put into the service of the social community. But the left-wing has now a problem. According to Griffiths and Lucas, " The collapse of communism, however, has left the capitalism triumphant, but many now are unhappy at the selfish individualism it seems to foster, and yearn for a greater recognition of community values. Although the efficiency of capitalism is undeniable, and, more importantly, the security if offers against the totalitarian inclinations of the possessors of political power, it seems abrasively tough-minded about the plight of those who lose out in the competitive market, those who are poor, disadvantaged, or unemployed. Left-wing critics are full of compassion and sympathy, but seem much happier spending other people's money than making their own. Business, though no longer wicked, is still not esteemed. It is like refuse collection and sewage disposal, activities perhaps necessary, but not greatly thought of."22
Despite these antagonistic views, the critics on the right, as well as those from the left have one common target: the big corporations, accused of having too much power. The left intellectuals believe that the huge multinational companies are too strong in their relations with the government, the defender of the public good - while the conservatives claim that the big corporations are too strong in the marketplace, in their relationships with the independent small entrepeneurs, modifying or even breaching the 'natural laws' of a free market economy.
But not everybody is discontended with the capitalistic society. The main stream in business ethics does not deny the shortcomings of the free market economy, but has no doubt that this economic system is by far the best practical solution ever experienced. Consequently, the problem is not to look for another social and economic system, but to improve the existing one. From this point of view, the economic life does not have a special morality of its own, conflicting with some deeper and more universal ethical values. The antrepeneurs and the business people must not be required neither more, nor less than any other social agent, and they must not respect specific norms and values, different from those recognized by the ordinary citizens. Therefore, business ethics is not a social criticism, but an application of the general moral values and principles.
The controversies among the critics and the defenders of capitalism belong to a specific kind of philosophical analysis, which Sorell and Hendry call the essentialist approach of business ethics. In their own words, this particular way of securing a broad coverage of the moral territory means "to focus on morally significant characteristics that all businesses have in common, or morally significant characteristics that are essential to the system in which business operates. For instance, if it is a defining characteristic of a business that it sets out to be profitable, and if there is something morally wrong with seeking profit, then one could say something about the morality of all businesses by commenting on the morality of its essential feature: pursuing profit."23 The essentialist approach could be pursued with the aim of showing that business was morally suspect, as in Marxist attempts to show that profit is the theft of something from wage-labourers. Or it could be pursued with the aim of showing that business was morally creditable, as when business or the market economy is represented as the embodiment of an ideal of unforced service to one's fellow human beings.
Marxist criticism of capitalism based on a certain theory of the origin of profit has already been identified as essentialist, and Marxist critiques of multinational business operations in the Third World are both numerous and influential. More recently, free market diagnoses and solutions of the problems of the newest developing world - Eastern Europe - have become commonplace, and with them have come moral prescriptions for ways of organizing society that are most in tune with the market. There are undeniable attractions in gearing business ethics to the supposed moral worth of the free market or to the supposed immorality of making profits. And the contention between essentialist approaches may generate a kind of insight that is not otherwise available. No one who has heard both doctrinaire free-marketeers and doctrinaire Marxists is likely to be won over to either side, but hearing both sides can improve one's understanding of capitalism in ways that the detailed examination of business case studies or national economic histories cannot.
However, the essentialist approach is not the dominant view in business ethics. Most of the specialists in this field adopt what Sorell and Hendry call the generalist approach. "It, too, tries to get beyond a narrow view of business, but not by latching on to moral characteristics of business in general. Instead, it keeps the variety of business activity and the variety of moral risk to the fore. Both the essentialist and the generalist approach try to get beyond particular businesses, or sectors of business, to business in general, but the essentialist approach works by saying what different businesses or sectors of business have in common, while the generalist approach tries to assemble a composite picture of business ethics in general, drawn from moral characteristics that are peculiar to different branches of business. Though the characteristics are drawn from different branches of business, together they may be representative of the moral risks facing business in general."24 Sorell and Hendry propose a sugestive analogy. The difference between the essentialist and generalist approach is like the difference between an aerial photograph of a town and a collection of photographs of its main landmarks taken at the ground level. The collection of photographs correspond to generalism: it leaves out a great deal and is openly selective, but it does show a few important things in life-like detail. The aerial photograph, on the other hand, while it includes everything, is unlikely to give an impression of life on the ground.
Not questioning if we should do business to make a profit or not, but taking as a given fact the free market economy and its rules, as they are, the generalist approach investigates different sectors of business, with the aim of answering one fundamental question: What all kinds of business people should do, besides maximising their profits, so that their activities would be not only profitable - the economic imperative - but also morally correct - the ethical imperative? We have tried to argue that, besides his moral duty to keep the law, every honest, serious, respectable, and, in the long run, successful businessman must take some moral responsibilities and obligations, whose standard is more or less higher than the minimal demands of the legal system. What kind of responsibilities and obligations? It is not hard to find the most important of them. Some of them are directed towards particular classes of persons, sometimes called 'stakeholders', and some attach to certain capacities or roles. C. B. Handy distinguishes six different sorts of stakeholder, whose interests ought to be considered by those taking decisions: financiers, employees, suppliers, customers, the environment, and society as a whole. He argues that these six classes constitute a hexagon, within which a decision-maker has to balance different, and sometimes conflicting, obligations.25 Further distinction may be drawn. Shareholders are in a different position from other creditors. Obligations to society comprise obligations to the local community, to the nation and perhaps to the international community and the whole of mankind. Many firms also recognize some obligation to to their industry or trade. There are certain obligations, as well as certain non-obligations, to competitors.
It is tempting to describe these as duties. Certainly, we could tax a businessman to explain why he had failed to consider his shareholders, employees, locality, country or the environment, and if the questions were brushed off with a 'Why should I? It is none of my business', his reply would sound hollow. But the word 'duty' denotes a stringency of obligation that often does not obtain. The duties of avoiding violence and of honesty are stringent, but many obligations are prima facie only, and may be overridden by others. A business has to survive, and that may require sacking not just an incompetent, but even a hard-working, employee. Faced with the apparently insatiable demands of morality, a businessman may feel inclined to follow Machiavelli and relegate morality to a private world, as not being practicable in the serious conduct of affairs. That is a mistake. We can guard against that mistake by talking not of peremptory duties, but grounds of obligation. I do not always have to keep redundant or incompetent employees in work: but I have some obligation towards them. If the survival of the firm depends on it, I must take the hard decision: but I am not usually in that extremity, and may be able to postpone the sacking, giving warnings in the case of incompetence, and long notice in the case of redundancy. It is not a matter of hard-and-fast rules. A businessman is not required always to be soft. But neither need he be always ruthless as a matter of course.
Obligations to shareholders and employees, as well as obligations of shareholders and employees, are primarily internal obligations, arising out of shared concerns. Obligations to customers, suppliers, creditors, and competitors are primarily external obligations, arising from our recognition of the validity of the other person's point of view as a necessary condition of making coherent sense of business activity. But in each of these cases some of the other considerations also apply, and the remainder are evidently mixed cases.26
Stating, analyzing, and explaining the internal and external moral obligations of a businessman is an easy task as soons as someone is convinced that making profit is not incompatible with an ethical conduct but, on the contrary, 'good ethics is good business'. To argue this general principle is the difficult task of business ethics. Perhaps the most resisting obstacle is the general perception of business activities as primarily - if not exclusively - competitive. If business means competition, they say, then each one must take care of himself and watch his back; no pity, no mercy, no weakness for anybody, since everyone else is an enemy. In this view, business is not suited for the bleeding hearts, idealists and dreamers, but a battle field in which only the tough people can survive. Therefore, egoism seems to be the best suited, if not the only successful strategy in business, while ethics requires an altruistic behaviour. Consequently, business and ethics appear to be antagonistic and incompatible. Let us see, in the next chapter, if this perception of business as a merciless jungle-like battle for survival is an accurate picture of business activities or not.
Cf. R. T. De George, Business Ethics, 3rd edn, New York, Macmillan, 1990, ch. 1.
Cf. P. V. Lewis, "Defining 'Business Ethics': Like Nailing Jello to the Wall", Journal of Business Ethics, 14 / 1985, pp. 839-53.
Roger Crisp, "A Defense of Philosophical Business Ethics", in Business Ethics. Perspectives on the Practice of Theory, edited by Cristopher Cowton & Roger Crisp, Oxford University Press, 1998, p. 9. For a slightly different definition, see Laura Nash, Good Intentions Aside: A Manager's Guide to Resolving Ethical Problems, Boston, MA, Harvard Business School Press, 1990
Henry Sidgwick, The Methods of Ethics, (7th edn 1907), Indianapolis / Cambridge, Hackett Publishing Company, 1981, p. 1.
BusinessWeek on line, June 13, 2002 (www.businessweek.com)
Ibid., January 17, 2003
Ibid., July 8, 2002
Ibid., January 17, 2003
Ibid., July 8, 2002
11 Elaine Sternberg, Just Business. Business Ethics in Action, London, Little, Brown and Co., 1994, p. 26
13 Michael Rion, "The Ins and Outs of Ethics", BusinessWeek on line, May 14, 2001
14 Cf. David Stewart, Business Ethics, New York, McGraw-Hill, 1996, p. 17
15 Elaine Sternberg, Op. cit, p. 16
16 Tom Sorell and John Hendry, Business Ethics, Oxford, Butterworth-Heinemann, 1994, pp. 7-8.
17 BusinessWeek on line, January 17, 2003
18 Elaine Sternberg, op. cit., p. 16
19 M. R. Griffiths and J. R. Lucas, Ethical Economics, London, MacMillan Press Ltd., 1996, p. v
20 Milton Friedman, Capitalism and Freedom, Chicago, University of Chicago Press, 1962, p. 133
21 Ibid., p. 25
22 Griffiths and Lucas, op. cit., pp. v-vi
23 Sorell and Hendry, op. cit., p. 8
24 Ibid., p. 9
25 Charles Handy, The Empty Raincoat, London, 1995, pp. 131-131; p. 143
26 Griffiths and Lucas, op. cit., p. 53
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